Ortiz: Overtime Rule Would Hurt More Than Help

The Department of Labor proposed new overtime regulations recently, doubling the threshold at which American employees can be considered exempt from pay at time-and-a-half for hours worked over 40 per week. Those earning less than $50,400, the rule proposes, would be entitled to overtime pay, more than doubling the current threshold of $23,000.

According to a study by Oxford Economics, the rule will cost businesses about $5.2 billion to comply. In order to absorb these costs and stay in business, some employers would be forced to reduce benefits, promotions, and job opportunities. This will hurt the very people – the young and less-skilled looking for higher incomes – which the rule intends to help.

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But maybe this cost is worth it for the 5 million people that the White House expects will get a raise from the rule. Other estimates put those affected by the rule at a much lower 3 million. In either case, the number of people actually getting a raise would only be a fraction of this as employers seek to avoid the new costs by adjusting their employees’ work schedules.

In practice this means reducing hours. The Oxford study estimates that 12 percent of retail and restaurant employees would see their hours reduced, at a cost of $2.7 billion.

And though the issue of fewer hours doesn’t capture the headlines, it is a serious issue. The number of people involuntarily working part-time has increased by 45 percent over the last eight years, partially due to distortionary regulations like this one.

But the effects won’t be limited to just fewer hours. Employers will also reclassify salaried employees as rank-and-file hourly workers, taking away vacation time, bonuses, and flexibility that often come with salaried work at the same time. The Oxford study estimates that 36 percent of retail and restaurant employees would be converted from salaried to hourly positions if this rule takes effect.

Manhattan Institute policy analyst Diana Furchtgott-Roth highlights how this flexibility could be especially troublesome for single mothers, who may prefer a more flexible work schedule with longer hours to higher pay: “If you work, say, an extra day and say, ‘I want time off instead [of overtime],’ then they would not be allowed to give it to you.”

Beyond just fewer benefits and less flexibility, being reclassified as rank-and-file hourly employee from a salaried one – the reverse of the traditional career path – could have a profound psychological impact on the employee. Being a salaried employee is a badge-of-honor, which many work years to achieve. Having it stripped could lead to lack of motivation and disillusionment with one’s work.

The rule would thus hollow out the salaried positions that have long employed the middle-managers that are a key component of the middle class. And for salaried employees who have not reached middle-management, the rule could cut off pathways to it.

Long hours as a young employee is a rite-of-passage for many Americans who trade hard work for the opportunity to climb the career ladder. Weakening the bottom rungs of this ladder as this rule does disproportionately hurts those who rely on grit and work ethic, rather than pedigree, to get ahead.

This rule is just the latest in a slew of new mandates on businesses from regulators. But many of these bureaucrats won’t be earning overtime pay for their work; congressional employees who craft many of these mandates are exempt from the overtime rule. Just another example of the government’s “good for thee, but not for me” mindset.